330 POPULAR SCIENCE MONTHLY. 



of a nation may proceed with regularity, and its development be 

 continuous and orderly. 



Suppose that the money actually deposited in a bank amounts 

 to one hundred thousand dollars. The bank knows from experi- 

 ence that it will not need to keep more than fifty thousand dollars 

 of this to meet current demands, and therefore discounts notes to 

 the extent of fifty thousand dollars. It has received money to the 

 extent of one hundred thousand dollars, promises to pay money 

 to the extent of fifty thousand dollars, and made itself liable to 

 the extent of one hundred and fifty thousand dollars that is, it 

 is responsible for the payment of checks to an amount fifty per 

 cent in excess of the amount of money which it has received. A 

 definite amount of money is made the basis of liability for an 

 amount one and a half times as great. But a bank discounts not 

 only from its actual deposits, but also from its surplus of accu- 

 mulated profit, and such of its capital as is not invested in real 

 estate, bank building and fixtures. Suppose that the money 

 actually deposited in a bank amounts to a hundred thousand 

 dollars, that it has a surplus of two hundred thousand dollars, 

 and its capital in excess of the amount invested in bonds, real 

 estate, and banking house is two hundred thousand dollars ; its 

 funds available for discount thus amount to five hundred thou- 

 sand dollars. As the only legal restriction upon the extent of its 

 discounts is the requirement that it maintain a reserve in actual 

 money amounting to twenty-five per cent of its deposits, it is obvi- 

 ous that by keeping on hand a hundred and fifty thousand dollars 

 in actual money, its statement of deposits may show six hundred 

 thousand dollars. Of this a hundred thousand dollars is actual 

 money received as deposits and five hundred thousand dollars the 

 proceeds of discounted notes. And thus it is evident how it is 

 possible for by far the greater portion of the exchanges of the 

 country to be effected by representatives of value based upon the 

 assurance of the production of human effort contained in prom- 

 issory notes. It must be recognized that this furthering of the 

 exchange of the result of human effort may be of vast benefit to 

 the public as a whole. For example, a Southern planter, with 

 ripening acres of cotton, may not have the means wherewith to 

 pay for the picking, cleaning, packing, and freight to the place of 

 market. The proceeds of a note discounted at a bank will pro- 

 vide him with the necessary means, and he pays the note with 

 the money obtained from the sale of the cotton. Likewise with 

 an elevator owner in Chicago purchasing grain for export ; or a 

 coal operator of Pittsburg who desires to send fuel by river to the 

 Southern, or by lake to the Northwestern markets; or a mer- 

 chant with store, clerks, and knowledge of the wants of his sec- 

 tion may give his notes for needed goods which he pays from the 



